These are challenging times for many real estate entrepreneurs who are finding that the techniques and strategies they’ve relied on for years just don’t work anymore. It’s time to look for new ways to create profit centers. The good news is that there are many NEW opportunities for those willing to make some changes in your business.
A couple of months ago I was approached by someone who wanted me to invest in a fixer-upper deal that he had found. On the surface of it, it was a good deal. The house could be bought for about 60% of current value, and fixing it up would be profitable. At the last minute, the institutional lender had reneged on the loan and with just two days before the contract expired, there was no time to reapply with another lender. Nor was there time for me to be able to do any due-diligence, assess the local market where the house was located, check out the costs of rehab, etc. Still it seemed like an opportunity. What could I do? What would you do?
In the previous post I described how I set up a co-venture arrangement on short notice using a long term Option. Now let’s see why this worked out for both of us:
I don’t like lease/Options for a lot of reasons. First of all, although a lease/Option can generate more rents, it conveys an equitable interest in your property that sometimes forces you to go through a foreclosure rather than a simple eviction. And, sometimes the tenant actually goes out and gets a loan and buys your house right out from under you. Even though you might have made a profit, you’re forced to go out and find another house to replace the one that was sold, or face the prospect of paying capital gains taxes and having your money earn far less than it might have earned with the rental house.
Continue reading “When and Why to Offer an Option With Your Lease”
By far, most of the people who find themselves in dire straits today are those who substituted conventional institutional financing for creativity and patience. They were in a hurry to get in on the housing boom and threw caution to the wind. If they had merely Optioned the houses that they bought, they would have been able to make a lot more money faster by selling the houses they had optioned without the use of debt; and they would have completely avoided being wiped out by negative cash flow and falling values.
The ideal candidate for an Option is a person who doesn’t want to move out of his home, but can’t afford it. This also applies to investors who have fallen in love with negative cash flow houses that they want to hang onto until the market comes back. In contrast to Lease/Options, even though they provide fewer benefits, pure Options enable investors and speculators alike to control the profit on a property without the risk of loss of large sums of invested capital and effort that ownership of a highly leveraged could demand.
Continue reading “Leveraged Options Can Make Money Anywhere”
An ideal time for buyers to enter the market is when prices are still falling and optimism is at an all time low. Sellers are motivated to sell before their equities drop even more. Nightly Business Report estimates $9 Trillion is sitting on the sidelines waiting for clear signs that the bottom has been reached and prices are going to rise. Once that happens, buyers will rush back into the market, driving prices back up. Ultimately, because they are unwilling to buy into a falling market, they wind up paying more and making less profit than those who do.
Continue reading “Today’s Market Is Ideal for Options . . .”
The five most important words in any real estate transactions are WHAT'S IN IT FOR ME?
What are some of the advantages to using Options? Of course specific benefits will vary according to the individual needs of the parties, but we can make some general statements with regard to Options that might apply to everyone at one time or another. Let's start with LEVERAGE.
Continue reading “Leveraging Vs Borrowing – Advantage of Options”
If principal and interest payments would have totaled about $1995 per month, and taxes and insurance another $500, his rents would have needed to be in the range of $3000 per month in order to cover the normal operating expenses of a self-managed new property. But would they have been? Not in most areas of the country. For a house in the $315,000 range, rents might average around $1400 per month year around. That means that the speculator would be faced with about $19,200 per house per year in out of pocket costs. Twenty houses would have brought this to $384,000.
Leases and Options resemble interest-only Notes and mortgages with balloon payments when you come to think of it. A properly drafted Lease incorporates a promise to pay with security for the promise in the form of some sort of collateral in the same way that a Note and mortgage do. The Option requires a lump sum payoff - or another promise of payment - just like a balloon note. Oddly enough, when people see a Lease and an Option, they don't perceive the possibilities for wrapping either - or both - of them. Read on.
